Unbanked Consumers Use Reloadable Debit Cards as Bank Accounts

July 14, 2016, Written By Bill Hardekopf
Debit card isolated on a white background

A greater number of people are using reloadable debit cards in place of their checking accounts, according to a Pew research study.

Nearly 23 million adults are using prepaid cards regularly, and many of these consumers are unbanked. Since they don’t have traditional bank accounts, they use reloadable debit cards like a checking account.

General purpose reloadable (GPR) prepaid cards, or GPR prepaid accounts, let consumers add funds to their account via direct deposit or cash deposits. From there, they can withdraw the funds from ATMs or make purchases wherever credit cards are accepted.

“Our data show that the unbanked use their prepaid cards like checking accounts, reloading them more frequently and registering them more often. In contrast,  people with bank accounts use the cards more like an ancillary financial product in that they load funds on a card, spend it down, and then buy another one,” said Thaddeus King, an officer on the consumer banking project for The Pew Charitable Trusts. “When a prepaid card is someone’s only transaction account, it is especially important to ensure that the card is safe and comes with uniform protections against theft, loss, and deception.”

The “Banking on Prepaid” report, which surveyed adults who use GPR prepaid cards at least once a month, also found:

  • Prepaid card use jumped 50% between 2012 and 2014, and they are being used more frequently by those with bank accounts. They purchase the cards at their bank or credit union. Banked users tend to have higher incomes than unbanked prepaid card users.
  • More than 80% of unbanked GPR prepaid card users make less than $50,000 per year, half make under $25,000, and one-third make under $15,000.
  • The unbanked check their balances, add cash and register their cards more often than banked users.
  • Both banked and unbanked consumers are using prepaid cards to help them control their spending, stay out of debt and avoid overdraft fees. Since they are using these cards to avoid fees, most users do not want the option of overdrawing their accounts. In fact, 86% of unbanked users and 81% of banked users would rather have the transaction declined than pay a $35 overdraft fee.
  • Many users are covered by liability protections but don’t know it. These safeguards minimize or eliminate a cardholder’s liability for unauthorized purchases if the card is lost or stolen, but only if the card is registered.
  • 77% of these cards carry FDIC insurance and a binding arbitration clause.

Since so many people are using debit cards, many believe the Consumer Financial Protection Bureau (CFPB) should create more safety and transparency in this market.



The information contained within this article was accurate as of July 14, 2016. For up-to-date
information on any of the terms, cards or offers mentioned above, visit the issuer's website.